Annual Financial Report. For the year ended June 30, 2016

Transcription

1 Annual Financial Report For the year ended June 30, 2016

2 BELLINGHAM TECHNICAL COLLEGE 2016 Financial Report Table of Contents Trustees and Administrative Officers... 3 Independent Auditor s Report on Financial Statements... 4 Management s Discussion and Analysis... 8 College Statement of Net Position College Statement of Revenues, Expenditures and Changes in Net Position College Statement of Cash Flows Foundation Statement of Financial Position Foundation Statement of Activities and Changes in Net Position Notes to the Financial Statements Required Supplementary Information For information about the financial data included in this report, contact: Vice President of Administrative Services Bellingham Technical College 3028 Lindbergh Avenue Bellingham, WA (360) For information about enrollment, degrees awarded, or academic programs, contact: Institutional Research and Planning Bellingham Technical College 3028 Lindbergh Avenue Bellingham, WA (360) or Visit the home page at Bellingham Technical College Page 1

3 This page intentionally left blank. Bellingham Technical College Page 2

4 Trustees and Administrative Officers BOARD OF TRUSTEES James W. Cunningham, Chair Debbie Ahl, Vice Chair Jim Groves Lisa Woo Jeffrey Callender Kimberly Perry, Ed. D., BTC President, Executive Secretary to the Board of Trustees EXECUTIVE OFFICERS Kimberly Perry, Ed. D. - President Linda Fossen, M. Ed. VP of Student Services Frank W. Powers, Ph. D. - VP of Instruction Chad Stiteler VP of Administrative Services Dean Fulton Executive Director, BTC Foundation Camille Gatza Executive Director, Human Resources Walter Hudsick Dean of Professional Technical Education Tonya McCabe Dean of Professional Technical Education Trustees and Officer list effective as of March 31, 2017 Bellingham Technical College Page 3

5 Independent Auditor s Report on Financial Statements INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS Board of Trustees Bellingham Technical College Bellingham, Washington Bellingham Technical College July 1, 2015 through June 30, 2016 REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the business type activities and aggregate discretely presented component unit of the Bellingham Technical College, Whatcom County, Washington, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the College s basic financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Bellingham Technical College Foundation, which represents 100 percent, of the assets, net position, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose report thereon has been furnished to use, and our opinion, insofar as it relates to the amounts included for the Bellingham Technical College Foundation is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Bellingham Technical College Page 4

6 financial statements of the Bellingham Technical College Foundation were not audited in accordance with Governmental Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the College s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of the Bellingham Technical College, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Matters of Emphasis As discussed in Note 1, the financial statements of the Bellingham Technical College, an agency of the state of Washington, are intended to present the financial position, and the changes in financial position, and where applicable, cash flows of only the respective portion of the activities of the state of Washington that is attributable to the transactions of the College and its aggregate discretely presented component units. They do not purport to, and do not, present fairly the financial position of the state of Washington as of June 30, 2016, the changes in its financial position, or where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Bellingham Technical College Page 5

7 Other Matters Report on Summarized Comparative Information The financial statements include summarized prior-year comparative information for the Bellingham Technical College Foundation. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Foundation s financial statements for the year ended June 30, 2016, from which such partial information was derived. Other auditors have previously audited the Bellingham Technical College Foundation s 2016 financial statements and they expressed an unmodified opinion on their report dated December 7, Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and pension plan information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated June 1, 2017 on our consideration of the College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That Bellingham Technical College Page 6

8 report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control over financial reporting and compliance. Pat McCarthy State Auditor Olympia, WA June 1, 2017 Bellingham Technical College Page 7

9 Management s Discussion and Analysis Bellingham Technical College The following discussion and analysis provides an overview of the financial position and activities of Bellingham Technical College (the College) for the fiscal year ended June 30, 2016 (FY 2016). This overview provides readers with an objective and easily readable analysis of the College s financial performance for the year, based on currently known facts and conditions. This discussion has been prepared by management and should be read in conjunction with the College s financial statements and accompanying note disclosures. Reporting Entity Bellingham Technical College is one of thirty public community and technical college districts in the state of Washington, providing comprehensive, open-door academic programs, workforce education, basic skills and community service educational programs to approximately 8,000 students. The College confers associates degrees, certificates and high school diplomas. The College was established in 1957 and its primary purpose is to provide student-centered, highquality professional technical education to students pursuing educational and employment goals, while contributing to the economic and cultural enrichment of its communities. The College s main campus is located in Bellingham, Washington, a community of about 83,000 residents. The College is governed by a five member Board of Trustees appointed by the Governor with the consent of the state Senate. In accordance with Washington State law governing technical colleges, the College s board includes one member from business and one member from labor. In addition, the college has a Governor-appointed student trustee who is prohibited from voting on personnel or collective bargaining matters. By statute, the Board of Trustees has full control of the College, except as otherwise provided by law. Using the Financial Statements The financial statements presented in this report encompass the College and its discretely presented component unit, the BTC Foundation. The College s financial statements include the Statement of Net Position, the Statement of Revenues, Expenses and Changes in Net Position, and the Statement of Cash Flows. The Statement of Net Position provides information about the College as of June 30, The Statement of Revenue, Expenses and Changes in Net Position and the Statement of Cash flows provide information about operations and activities over the entire fiscal year. Together, these statements, along with the accompanying notes, provide a comprehensive way to assess the College s financial health as a whole. The Statement of Net Position and Statement of Revenues, Expenses and Changes in Net position are reported under the accrual basis of accounting where all of the current year s revenues and expenses are taken into account regardless of when cash is received or payments Bellingham Technical College Page 8

10 are made. Full accrual statements are intended to provide a view of the College s financial position similar to that presented by most private-sector companies. These financial statements are prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), which establishes standards for external financial reporting for public colleges and universities. The full scope of the College s activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic financial statements. Statement of Net Position The Statement of Net Position provides information about the College s financial position, and presents the College s assets, liabilities, and net assets at year-end and includes all assets and liabilities of the College. A condensed comparison of the Statement of Net Position is as follows: Condensed Statement of Net Position As of June 30th FY 2016 FY 2015 Assets Current Assets $ 4,975,606 $ 4,089,818 Capital Assets, net 66,854,910 67,726,422 Other Assets, non-current 4,105,785 4,295,698 Total Assets $ 75,936,300 $ 76,111,938 Deferred Outflows $ 793,031 $ 485,374 Liabilities Current Liabilities $ 3,908,232 $ 3,182,446 Other Liabilities, non-current 25,600,412 26,063,353 Total Liabilities $ 29,508,644 $ 29,245,799 Deferred Inflows $ 535,306 $1,141,230 Net Position $ 46,685,380 $ 46,210,282 Current assets consist primarily of cash, investments, various accounts receivables and inventories. Current assets increased by about $886 thousand when compared to FY 2015 primarily due to an increase in cash and cash equivalents and accounts receivable. Capital assets, net of depreciation decreased by about $872 thousand from the prior year. Other non-current assets consist primarily of the long-term portion of certain investments. Deferred outflows of resources totaling $793 thousand are related to the net pension liability recorded on the College s financials. Bellingham Technical College Page 9

11 Current liabilities include amounts payable to suppliers for goods and services, accrued payroll and related liabilities, the current portion of Certificates of Participation (COP) debt and unearned revenue. Current liabilities can fluctuate from year to year depending on the timeliness of vendor invoices and resulting vendor payments, especially in the area of capital assets and improvements. The increase in current liabilities from FY 2015 to FY 2016 is primarily due to an increase in accounts payable and accrued liabilities of about $693 thousand. Non-current liabilities primarily consist of the value of vacation and sick leave earned but not yet used by employees, pension liability and the long-term portion of COP debt. The College s noncurrent liabilities had a net decrease of approximately $463 thousand compared to FY 2015 balances. This decrease is the net effect of an increase of $837 thousand in the net pension liability booked in compliance with GASB Statement No. 68 and a reduction of approximately $1.3 million from FY 2015 balances as the College pays down the principal owed on COP. Deferred inflows of resources related to the College s net pension liability totaled $535 thousand. Deferred inflows or resources include the calculated difference between actual and projected investment earnings on the state s pension plans. Net position represents the value of the College s assets and deferred outflows after liabilities and deferred inflows are deducted. The College is required by accounting standards to report its net position in four categories: Net Investment in Capital Assets The College s total investment in property, plant, equipment, and infrastructure net of accumulated depreciation and outstanding debt obligations related to those capital assets. Changes in these balances are discussed above. Restricted: Nonexpendable consists of funds in which a donor or external party has imposed the restriction that the corpus or principal is not available for expenditures but for investment purposes only. Historically, donors interested in establishing such funds to benefit the College or its students have chosen to do so through the Foundation. As a result, the College is not reporting any balance in this category. Expendable resources the College is legally or contractually obligated to spend in accordance with restrictions placed by donor and/or external parties who have placed time or purpose restrictions on the use of the asset. Unrestricted Includes all other assets not subject to externally imposed restrictions, but which may be designated or obligated for specific purposes by the Board of Trustees or management. Prudent balances are maintained for use as working capital, as a reserve against emergencies and for other purposes, in accordance with policies established by the Board of Trustees. Bellingham Technical College Page 10

12 Net Position FY 2016 FY 2015 As of June 30th Net investment in capital assets $ 44,794,910 $ 45,274,623 Restricted Expendable (3.5% Financial Aid) 483, ,555 Unexpendable Unrestricted 1,406, ,104 Total Net Position $ 46,685,380 $ 46,210,282 Bellingham Technical College Page 11

13 Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position accounts for the College s changes in total net position during FY The objective of the statement is to present the revenues earned, both operating and non-operating, and the expenses paid or incurred by the College, along with any other revenue, expenses, gains and losses of the College. Generally, operating revenues are earned by the College in exchange for providing goods and services. Tuition and grants and contracts are included in this category. In contrast, nonoperating revenues include monies the College receives from another government without directly giving equal value to that government in return. Accounting standards require that the College categorize state operating appropriations and Pell Grants as non-operating revenues. Operating expenses are expenses incurred in the normal operation of the College, including depreciation on property and equipment assets. When operating revenues, excluding state appropriations and Pell Grants, are measured against operating expenses, the College shows an operating loss. The operating loss is reflective of the external funding necessary to keep tuition lower than the cost of the services provided. A condensed comparison of the College s revenues, expense and changes in net position for the years ended June 30, 2016 and 2015 is presented below. Condensed Statement of Revenue, Expenses and Changes in Net Position as of June 30th FY 2016 FY 2015 Operating Revenues $ 15,807,746 $ 14,475,294 Operating Expenses 34,072,772 32,128,090 Net Operating Loss $ (18,265,027) $ (17,652,796) Non-Operating Revenues(Expenses) 16,262,759 14,332,820 Income (Loss) Before Capital Contributions $ (2,002,268) $ (3,319,976) Capital Appropriations 2,477,366 3,802,747 Increase (Decrease) in Net Position $ 475,098 $ 482,772 Net Position, Beginning of the Year 46,210,282 45,727,510 Net Position, End of the Year $ 46,685,380 $ 46,210,282 Bellingham Technical College Page 12

14 Revenues The State of Washington legislatively appropriates funds to the State Board for Community and Technical Colleges (SBCTC) which then allocates monies to each individual college. Systemlevel appropriations hit their height in FY 2009 and then declined until FY 2013 primarily from the effect of the national economic recession. In both, FY 2015 and 2016 the Legislature reinstated a small portion of the previous cuts. Over this same period, the Legislature and SBCTC instituted increases in tuition rates to partially offset the reduction in state appropriations. These increases have begun to stress student pocket books while loan amounts and college tuition costs have become a national concern recently. For FY16, the Legislature enacted the Affordable Education Act which reduced tuition by five percent at the College. This reduced the amount of tuition revenue collected by the College however, the Legislature did backfill a significant portion of this loss through the state appropriation funding. Tuition revenue is affected by the amount of tuition and the actual student enrollment for the fiscal year. Despite the legislative reduction to tuition, tuition and fee revenue increased about 4.5 percent over FY 2015 in FY 2016 primarily from increased student enrollment. The College receives capital spending authority on a biennial basis. In accordance with accounting standards, the amount shown as capital appropriation revenue on the financial statement is the amount expended in the current year. Capital appropriations decreased by $1.325 million or about 35 percent, when compared to FY Expenditures from capital project funds that do not meet accounting standards for capitalization are reported as operating expenses. Those expenditures that meet the capitalization standard are not shown as expense in the current period and are instead recognized as depreciation expense over the expected useful lifetime of the asset. Bellingham Technical College Page 13

15 Comparison of Selected Elements of Revenue The chart below shows the amount, in dollars, for selected areas of revenue for FY 2016 and FY ,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Selected Elements of Revenue for the Years Ended June 30, 2016 and 2015 Note: For purposes of this chart, tuition and fees reflect amounts collected and may include amounts students paid with Pell Grant proceeds and is reported as gross tuition as compared to the tuition in the notes which is reported net of discounts and allowances. FY2016 FY 2015 Expenses After years of funding reductions, the College has experience increased revenue both from the state and increasing enrollment. Increased revenue has increased expenditures over FY Specifically, salaries have increased as result of hiring for vacant positions previously on hold, negotiated increases for faculty and classified staff, and increasing costs related to having to compete in the job market in order to retain and/or replace retirements and resignations. Utility costs remained similar to the prior year based on a mild winter, reducing usage. Expenses for supplies and materials and purchased services were comparable to FY 2015 levels. All other costs are reported as operating expenses and include items such as travel, non-capitalized equipment, printing and other supplies which increased in order to support campus over the prior year. Depreciation expense is primarily driven by capital activity, with the annual depreciation expense showing an increase in any year when a new building is placed in service. Bellingham Technical College Page 14

16 Comparison of Selected Elements of Operating Expenses The chart below shows the amount, in dollars, for selected areas of operating expenses for FY 2016 and FY ,000,000 Selected Elements of Expense for the Years Ended June 30, 2016 and ,000,000 12,000,000 10,000,000 8,000,000 6,000,000 FY ,000,000 FY ,000,000 Salaries and wages Benefits Operating expenses Supplies Purchased and Services materials Utilities The chart below shows the percentage of each functional area of operating expenses for FY FY 2016 Expenses by Functional Type for the Year Ended June 30, % 6.7% Instruction Academic Support Services 32.6% Student Services 16.6% Institutional Support 7.5% 10.6% 12.2% 8.2% Operations and Maintenance of Plant Scholarships and Other Student Financial Aid Auxiliary enterprises Depreciation Bellingham Technical College Page 15

17 Capital Assets and Long-Term Debt Activities The community and technical college system submits a single prioritized request to the Office of Financial Management and the Legislature for appropriated capital funds, which includes major projects, minor projects, repairs, emergency funds, alternative financing and major leases. The primary funding source for college capital projects is state general obligation bonds. In recent years, declining state revenues significantly reduced the state s debt capacity and are expected to continue to impact the number of new projects that can be financed. In addition, the College has one of four community college projects that were funded through a COP against which system wide building fee monies were pledged. At June 30, 2016, the College had invested $66,854,910 in capital assets, net of accumulated depreciation. This represents a decrease of about $1.67 million from last year, as shown in the table below. Asset Type June 30, 2016 June 30, 2015 Change Land $ 803,201 $ 803,201 $ - Construction in Progress 66, ,796 (120,236) Buildings, net 63,860,363 65,266,547 (1,406,184) Equipment, net 1,973,235 2,122,136 (148,901) Library Resources, net 151, , Total Capital Assets, Net $ 66,854,910 $ 68,529,624 $ (1,674,714) The decrease in net capital assets can be attributed to the completion of the Perry Center building and normal replacement and acquisition of equipment and library resources which were slightly more than offset by current year depreciation. At June 30, 2016, the College had $22,060,000 in outstanding debt resulting from the College entering into two COP. In FY 2010, the College entered into a COP for the construction of the Campus Center building and remodel of the College Services and Des McArdle Center buildings. In FY 2011, the College entered into a COP for the construction of space within the Campus Center building for the Campus Store and Student Activities Center. Description June 30, 2016 Certificates of Participation - Campus Center & College Services $ 20,910,000 Certificates of Participation - College Store & Student Activities Center 1,150,000 Total $ 22,060,000 Additional information on Capital Assets and Long-Term Debt Activities can be found in Notes 6, 12, 13 & 14 of the Notes to the Financial Statements. Bellingham Technical College Page 16

18 Economic Factors That May Affect the Future Economically, Washington State continues to experience slightly stronger growth than the national economy. Forecasted economic growth is projected at slightly more than two percent for the next biennium. Despite this, the financial outlook remains questionable. Student age populations are anticipated to slightly decline or remain stagnant for the next decade and as the economy improves, students often choose work over completing their degree. The State of Washington budget remains stressed with aging infrastructure, homelessness, and K-12 education challenges all vying for greater percentages of the state budget than they ve previously been supported by. This remains concerning since from FY 2009 through FY 2015, the College s state funding appropriations have already decreased by approximately 15 percent. However, in the most recent biennium, the legislature reinvested in the State Board of Community and Technical Colleges (SBCTC) through reducing tuition for students while backfilling those lost tuition dollars to the individual colleges. The SBCTC continues to request additional funds from the legislature to support student access and success. In June of 2016, the SBCTC elected to move to a new allocation model changing how the state allocated funds are distributed to each college. The new model is based on performance in several key indicators, from general enrollments, enrollments in high priority programs/areas, student completion and student achievements. Additionally, the funding now follows students and adjusts as enrollment increases/decreases at individual colleges. Based on BTC s workforce and priority programs, it is anticipated that the change in the allocation model will positively impact the College. Bellingham Technical College Page 17

19 College Statement of Net Position Bellingham Technical College Statement of Net Position June 30, 2016 Assets Current assets Cash and cash equivalents $ 2,238,820 Restricted cash 483,754 Accounts receivable, net 1,133,379 Due from State Treasurer 938,075 Inventories 181,578 Total current assets $ 4,975,606 Non Current Assets Long term investments $ 4,105,785 Non depreciable capital assets 869,761 Capital assets, net of depreciation 65,985,149 Total non current assets $ 70,960,694 Total assets $ 75,936,300 Deferred Outflows of Resources $ 793,031 Total Deferred Outflows of Resources $ 793,031 Liabilities Current Liabilities Accounts payable $ 842,970 Accrued liabilities 1,561,433 Unearned revenue 273,829 Leases and certificates of participation payable 1,230,000 Total current liabilities $ 3,908,232 Noncurrent Liabilities Compensated absences $ 1,170,358 Pension liability 3,600,054 Long term liabilities 20,830,000 Total non current liabilities $ 25,600,412 Total liabilities $ 29,508,644 Deferred Inflows of Resources $ 535,306 Total Deferred Inflows of Resources $ 535,306 Net Position Net investment in capital assets $ 44,794,910 Restricted for: Expendable 483,754 Unrestricted 1,406,716 Total Net Position $ 46,685,380 The footnote disclosures are an integral part of the financial statements. Bellingham Technical College Page 18

20 College Statement of Revenues, Expenditures and Changes in Net Position Bellingham Technical College Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2016 Operating Revenues Student tuition and fees, net $ 6,443,398 Auxiliary enterprise sales 1,597,551 State and local grants and contracts 5,614,043 Federal grants and contracts 1,747,668 Other operating revenues 405,086 Total operating revenue $ 15,807,746 Operating Expenses Operating expenses $ 1,843,597 Salaries and wages 14,496,830 Benefits 4,555,172 Scholarships and fellowships 7,114,530 Supplies and materials 2,062,056 Depreciation 2,270,941 Purchased services 1,172,668 Utilities 556,977 Total operating expenses $ 34,072,772 Operating income (loss) $ (18,265,027) Non Operating Revenues (Expenses) State appropriations $ 12,452,603 Federal Pell grant revenue 5,508,055 Investment income, gains and losses 55,318 Building fee remittance (656,041) Innovation fund remittance (183,868) Interest on indebtedness (913,309) Net non operating revenues (expenses) $ 16,262,759 Income or (loss) before other revenues, expenses, gains, or losses $ (2,002,268) Capital Revenues Capital appropriations 2,477,366 Increase (Decrease) in net position $ 475,098 Net Position Net position, beginning of year $ 46,210,282 Net position, end of year $ 46,685,380 The footnote disclosures are an integral part of the financial statements. Bellingham Technical College Page 19

21 College Statement of Cash Flows Bellingham Technical College Statement of Cash Flows For the Year Ended June 30, 2016 Cash flow from operating activities Student tuition and fees $ 6,387,889 Grants and contracts 7,343,365 Payments to vendors (2,683,476) Payments for utilities (553,821) Payments to employees (14,403,989) Payments for benefits (4,596,117) Auxiliary enterprise sales 1,611,386 Payments for scholarships and fellowships (7,114,530) Other receipts (payments) (1,644,908) Net cash used by operating activities $ (15,654,202) Cash flow from noncapital financing activities State appropriations $ 12,047,280 Pell grants 5,508,055 Building fee remittance (656,041) Innovation fund remittance (183,868) Net cash provided by noncapital financing activities $ 16,715,427 Cash flow from capital and related financing activities Capital appropriations $ 2,584,595 Purchases of capital assets (606,037) Principal paid on capital debt (1,195,000) Interest paid (913,309) Net cash used by capital and related financing activities $ (129,752) Cash flow from investing activities Purchase of investments $ (355,275) Income of investments 55,318 Net cash used by investing activities $ (299,958) Increase in cash and cash equivalents $ 631,515 Cash and cash equivalents at the beginning of the year 2,091,060 Cash and cash equivalents at the end of the year $ 2,722,575 The footnote disclosures are an integral part of the financial statements. Bellingham Technical College Page 20

22 College Statement of Cash Flows (continued) Reconciliation to cash and cash equivalents Cash and cash equivalents in current assets $ 2,238,820 Restricted cash and cash equivalents $ 483,754 2,722,575 Reconciliation of Operating Loss to Net Cash used by Operating Activities Operating Loss $ (18,265,027) Adjustments to reconcile net loss to net cash used by operating activities Depreciation expense $ 2,270,941 Changes in assets and liabilities Receivables, net $ (264,527) Inventories 27,841 Accounts payable 458,756 Accrued liabilities 169,058 Deferred revenue (1,890) Compensated absences 26,728 Pension liability adjustment expense (76,082) Net cash used by operating activities $ (15,654,202) Noncash Capital, Financing and Investing Activities Donated Capital Assets $ 16,699 The footnote disclosures are an integral part of the financial statements. Bellingham Technical College Page 21

23 Foundation Statement of Financial Position BELLINGHAM TECHNICAL COLLEGE FOUNDATION STATEMENTS OF FINANCIAL POSITION JUNE 30, 2016 AND 2015 ASSETS Current assets Cash $ 59,259 $ 141,860 Pledges Receivable 21,435 6,581 Vehicles available for sale Total current assets 81, ,341 Other assets Investments 2,746,776 2,752,651 Total other assets 2,746,776 2,752,651 Total assets $ 2,828,270 $ 2,901,992 LIABILITIES AND NET ASSETS Current liabilities Accounts payable $ 6,024 $ 13,983 Total current liabilities 6,024 13,983 Net assets Unrestricted net assets 293, ,786 Temporarily restricted net assets 396, ,597 Permanently restricted net assets 2,132,220 2,097,626 Total net assets 2,822,246 2,888,009 Total liabilities and net assets $ 2,828,270 $ 2,901,992 The footnote disclosures are an integral part of the financial statements Bellingham Technical College Page 22

24 Foundation Statement of Activities and Changes in Net Position BELLINGHAM TECHNICAL COLLEGE FOUNDATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR JUNE 30, 2015) Unrestricted College Temporarily Permanently Jun 30, 2015 General Related Restricted Restricted Total Total Support and Revenue Contributions $ 24,879 $ - $ 192,181 $ 139,628 $ 356,688 $ 275,907 In-kind donations - 278, , , ,653 Special projects 158,303-55, , ,248 Interest and dividend income 12, ,549 62,424 63,653 Realized gain (loss) on investments (503) - - (1,925) (2,428) 31,877 Unrealized gain (loss) on investments (15,791) - - (38,176) (53,967) (11,279) Gain (loss) on sales of assets - - (250) - (250) (50) Total support from revenue before $ 179,763 $ 278,183 $ 260,406 $ 149,076 $ 867,428 $ 901,009 net assets released from restrictions Net assets released from restrictions 434,982 - (320,500) (114,482) - - Total support and revenue 614, ,183 (60,094) 34, , ,009 Expenses Scholarships 337, , ,326 In-kind equipment 12, ,429 41,897 Grants and awards 9, ,367 10,370 Projects 215, , ,803 Emergency funds 1, ,622 5,087 Brokerage fees 11, ,848 11,806 Administrative expenses 67, , , ,421 Total expenses 655, , , ,710 Increase (decrease) in net assets (40,263) - (60,094) 34,594 (65,763) 3,299 Net assets, beginning of year 333, ,597 2,097,626 2,888,009 2,884,710 Net assets, end of year $ 293,523 $ - $ 396,503 $ 2,132,220 $ 2,822,246 $ 2,888,009 The footnote disclosures are an integral part of the financial statements Bellingham Technical College Page 23

25 Notes to the Financial Statements June 30, 2016 These notes form an integral part of the financial statements. 1. Summary of Significant Accounting Policies Financial Reporting Entity Bellingham Technical College (the College) is a comprehensive community college offering open-door academic programs, workforce education, basic skills, and community services. The College confers associates degrees, certificates and high school diplomas. It is governed by a five-member Board of Trustees appointed by the Governor and confirmed by the state Senate. The College is an agency of the State of Washington. The financial activity of the College is included in the State s Comprehensive Annual Financial Report. The Bellingham Technical College Foundation (the Foundation) is a separate but affiliated nonprofit entity, incorporated under Washington law in 1987 and recognized as a tax exempt 501(c)(3) charity. The Foundation s charitable purpose is to solicit and receive contributions to provide scholarship assistance to students and support the educational programs of the College. Because the majority of the Foundation s income and resources are restricted by donors and may only be used for the benefit of the College or its students, the Foundation is considered a discrete component unit based on the criteria contained in Governmental Accounting Standards Board (GASB) Statement Nos. 61, 39 and 14. A discrete component unit is an entity which is legally separate from the College, but has the potential to provide significant financial benefits to the College or whose relationship with the College is such that excluding it would cause the College s financial statements to be misleading or incomplete. The Foundation s financial statements are discretely presented in this report. The Foundation s statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Intra-entity transactions and balances between the College and the Foundation are not eliminated for financial statement presentation. During the fiscal year ended June 30, 2016, the Foundation distributed approximately $492,608 to the College for restricted and unrestricted purposes. A copy of the Foundation s complete financial statements may be obtained from the Foundation s Administrative Offices by calling (360) Basis of Presentation The financial statements have been prepared in accordance with GASB Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments as amended by GASB Statement No. 35, Basic Financial Statements and Management Discussion and Analysis for Public Colleges and Universities. For financial reporting purposes, the College is considered a special-purpose government engaged only in Business Type Activities (BTA). In accordance with BTA reporting, the College presents a Bellingham Technical College Page 24

26 Management s Discussion and Analysis; a Statement of Net Position; a Statement of Revenues, Expenses and Changes in Net Position; a Statement of Cash Flows; and Notes to the Financial Statements. The format provides a comprehensive, entity-wide perspective of the College s assets, deferred inflows, liabilities, deferred outflows, net position, revenues, expenses, changes in net position and cash flows. Basis of Accounting The financial statements of the College have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred, regardless of the timing of the cash flows. For the financial statements, inter-agency receivables and payables have generally been eliminated. However, revenues and expenses from the College s auxiliary enterprises are treated as though the College were dealing with private vendors. For all other funds, transactions that are reimbursements of expenses are recorded as reductions of expense. Non-exchange transactions, in which the College receives (or gives) value without directly giving (or receiving) equal value in exchange includes state and federal appropriations, and certain grants and donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash, Cash Equivalents and Investments Cash and cash equivalents include cash on hand and bank demand deposits. Cash in the investment portfolio is not included in cash and cash equivalents as it is held for investing purposes. Cash and cash equivalents that are held with the intent to fund College operations are classified as current assets. The College records all cash, cash equivalents, and investments at amortized cost, which approximates fair value. The College combines unrestricted cash operating funds from all departments into an internal investment pool, the income from which is allocated on a proportional basis. The internal investment pool is comprised of cash, cash equivalents, U.S. Treasuries and U.S. Agency securities. Bellingham Technical College Page 25

27 Accounts Receivable Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. This also includes amounts due from federal, state and local governments or private sources as allowed under the terms of grants and contracts. Accounts receivable are shown net of estimated uncollectible amounts. Inventories Inventories, consisting primarily of merchandise for resale and course-related supplies in the College bookstore, and consumable supplies held in storage for food services activities are valued at cost using the First In, First Out (FIFO) method. Capital Assets In accordance with state law, capital assets constructed with state funds are owned by the State of Washington. Property titles are shown accordingly. However, responsibility for managing the assets rests with the College. As a result, the assets are included in the financial statements because excluding them would have been misleading. Land, buildings and equipment are recorded at cost, or if acquired by gift, at fair market value at the date of the gift. Capital additions, replacements and major renovations are capitalized. The value of assets constructed includes all material direct and indirect construction costs. Any interest costs incurred are capitalized during the period of construction. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. In accordance with the state capitalization policy, all land, intangible assets and software with a unit cost of $1.0 million or more, building and improvements with a unit cost of $100,000 or more, library collections with a total cost of $5,000 or more and all other assets with a unit cost of $5,000 or more are capitalized. Depreciation is computed using the straight line method over the estimated useful lives of the assets as defined by the State of Washington s Office of Financial Management. Useful lives are generally 3 to 7 years for equipment; 15 to 50 years for buildings and 20 to 50 years for infrastructure and land improvements. In accordance with GASB Statement 42, the College reviews assets for impairment whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable. Impaired assets are reported at the lower of cost or fair value. At June 30, 2016, no assets had been written down. Unearned Revenues Unearned revenues occur when funds have been collected prior to the end of the fiscal year but related to the subsequent fiscal year. The College has recorded future quarter tuition and fees as unearned revenues. Unearned revenues also include tuition and fees paid with financial aid funds. Bellingham Technical College Page 26

28 Tax Exemption The College is a tax-exempt organization under the provisions of Section 115 (1) of the Internal Revenue Code and is exempt from federal income taxes on related income. Net Pension Liability For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the State of Washington Public Employees Retirement System (PERS) and the Teachers Retirement System (TRS) and additions to/deductions from PERS s and TRS s fiduciary net position have been determined on the same basis as they are reported by PERS and TRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred Outflows of Resources and Deferred Inflows of Resources Deferred outflows of resources represent consumption of net position that is applicable to a future period. Deferred inflows of resources represent acquisition of net position that is applicable to a future period. Changes in net position liability not included in pension expense are reported as deferred outflows of resources or deferred inflows of resources. Employer contributions subsequent to the measurement date of the net pension liability are reported as deferred outflows of resources. Net Position The College s net position is classified as follows. Net Investment in Capital Assets. This represents the College s total investment in capital assets, net of outstanding debt obligations related to those capital assets. Restricted for Nonexpendable. This consists of endowment and similar type funds for which donors or other outside sources have stipulated as a condition of the gift instrument that the principal is to be maintained inviolate and in perpetuity and invested for the purpose of producing present and future income which may either be expended or added to the principal. The College does not have balances in this category. Restricted for Expendable. These include resources the College is legally or contractually obligated to spend in accordance with restrictions imposed by third parties. This balance is comprised of the 3.5% of tuition that is in fund 860 reserved for institutional financial aid. Restricted for Loans. The loan funds are established for the explicit purpose of providing student support as prescribed by statute or granting authority. The College does not have balances in this category. Unrestricted. These represent resources derived from student tuition and fees, and sales and services of educational departments and auxiliary enterprises. Bellingham Technical College Page 27

29 Classification of Revenues and Expenses The College has classified its revenues as either operating or non-operating revenues according to the following criteria: Operating Revenues. This includes activities that have the characteristics of exchange transactions such as (1) student tuition and fees, net of waivers and scholarship discounts and allowances, (2) sales and services of auxiliary enterprises and (3) most federal, state and local grants and contracts that primarily support the operational/educational activities of the colleges. Operating Expenses. This includes salaries, wages, fringe benefits, utilities, supplies and materials, purchased services, and depreciation Non-operating Revenues. This includes activities that have the characteristics of non-exchange transactions, such as gifts and contributions, state appropriations, investment income and Pell Grants received from the federal government. Non-operating Expenses. Non-operating expenses include state remittance related to the building fee and the innovation fee, along with interest incurred on the Certificate of Participation Loans. Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the Statements of Revenues, Expenses and Changes in Net Position. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the College, and the amount that is paid by students and/or third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other Federal, State or non-governmental programs are recorded as either operating or non-operating revenues in the College s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the College has recorded a scholarship discount and allowance. Discounts and allowances for the year ending June 30, 2016 are $3,334,047. State Appropriations The state of Washington appropriates funds to the College on both an annual and biennial basis. These revenues are reported as non-operating revenues on the Statements of Revenues, Expenses, and Changes in Net Position, and recognized as such when the related expenses are incurred. Building and Innovation Fee Remittance Tuition collected includes amounts remitted to the Washington State Treasurer s office to be held and appropriated in future years. The Building Fee portion of tuition charged to students is an amount established by the Legislature is subject to change annually. The fee provides funding for capital construction and projects on a system wide basis using a competitive biennial Bellingham Technical College Page 28

30 allocation process. The Building Fee is remitted on the 35 th day of each quarter. The Innovation Fee was established in order to fund the State Board of Community and Technical College s Strategic Technology Plan. The use of the fund is to implement new ERP software across the entire system. On a monthly basis, the College s remits the portion of tuition collected for the Innovation Fee to the State Treasurer for allocation to SBCTC. These remittances are nonexchange transactions reported as an expense in the non-operating revenues and expenses section of the statement of revenues, expenses and changes in net position. 2. Accounting and Reporting Changes In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application, which provides guidance for applying fair value to certain investments, and disclosures related to all fair value measurements. This Statement establishes a three-level hierarchy of inputs to valuation techniques used to measure fair value, and requires disclosures to be made about fair value measurements, the level of fair value hierarchy, and valuation techniques. The College reviewed the standard but it had no effect on FY16 statements. In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. This Statement is intended to improve financial reporting of governments whose employees are provided with pensions that are not within the scope of Statement No. 68, improve the usefulness of information associated with governments that hold assets accumulated for purposes of providing defined benefit pensions not within the scope of Statement No. 68, and to clarify the application of certain provisions of Statements No. 67 and 68. The College is currently working with SBCTC to determine the financial impact. In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, which identifies the hierarchy of generally accepted accounting principles (GAAP). The Statement reduced the GAAP hierarchy to two categories of authoritative GAAP, and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The College adheres to this hierarchy of GAAP. In March 2016, the GASB issued Statement No. 82, Pension Issues-an Amendment of GASB Statements No. 67, No. 68, and No.73. This Statement addresses issues regarding the presentation of payroll-related measures in the required supplementary information. The College has implemented this standard early in relation to the RSI presented with its financial statements. Bellingham Technical College Page 29

31 3. Cash and Investments Cash and equivalents Cash and cash equivalents include bank demand deposits and petty cash held at the College. Cash and cash equivalents are held with the intent of funding College operations and are classified as current assets. As of June 30, 2016, the carrying amount of the College s cash and equivalents was $2.7 million as represented in the table below. Table 1: Cash and Cash Equivalents June 30, 2016 Petty Cash and Change Funds $ 3,804 Bank Demand Deposits 2,718,771 Total Cash and Cash Equivalents $ 2,722,575 Restricted Cash Restricted Cash includes the 3.5 percent institutional financial aid from tuition in Fund 860. The amount of Restricted Cash at June 30, 2016 was $483,754. Investments Investments consist of U.S. Federal Agency debt. Investments in debt securities are subject to losses of all 100 percent of the balance of investments. One Year or Less 1-5 Years 6-10 Years 10 or More Years Table 2: Investment Maturities Fair Value U.S. Agency Obligations 4,100,000-4,100, Total Investments $ 4,100,000 $ - $ 4,100,000 $ - $ - Custodial Credit Risks Deposits Custodial credit risk for bank demand deposits is the risk that in the event of a bank failure, the College s deposits may not be returned to it. The majority of the College s demand deposits are with the Bank of America. All cash and equivalents, except for change funds and petty cash held by the College, are insured by the Federal Deposit Insurance Corporation (FDIC) or by collateral held by the Washington Public Deposit Protection Commission (PDPC). Interest Rate Risk Investments The College manages its exposure to fair value losses resulting from changes in interest rates by structuring the entire portfolio time horizon. Unless matched to a specific cash flow, the College generally will not directly invest in securities maturing more than five years from the date of purchase. Bellingham Technical College Page 30

32 Concentration of Credit Risk Investments State law limits College operating investments to the highest quality sectors of the domestic fixed income market and specifically excludes corporate stocks, corporate and foreign bonds, futures contracts, commodities, real estate, limited partnerships and negotiable certificates of deposit. College policy does not limit the amount the College may invest in any one issuer. Custodial Credit Risk Investments Custodial credit risk for investments is the risk that in the event of the failure of the counterparty to a transaction, the College will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. At June 30, 2016, all of the College s operating fund investments were held by the College s custodian banks in the College s name. Investment Expenses Under implementation of GASB 35, investment income for the College is shown net of investment expenses. The College s investment expenses for the fiscal year ended June 30, 2016 were $ Accounts Receivable Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. It also includes amounts due from federal, state and local governments or private sources in connection with reimbursements of allowable expenditures made according to sponsored agreements. At June 30, 2016, accounts receivable were as follows. Table 3: Accounts Receivable Amount Student Tuition and Fees $ 91,490 Due from the Federal Government 257,506 Due from Other State Agencies 375,922 Auxiliary Enterprises 60,243 Other 353,481 Subtotal $ 1,138,643 Less Allowance for Uncollectible Accounts (5,264) Total Accounts Receivable, net $ 1,133,379 Bellingham Technical College Page 31

33 5. Inventories Inventories, stated at cost using FIFO consisted of the following as of June 30, Table 4: Inventories Amount Consumable Inventories $ 12,327 Merchandise Inventories 169,251 Total Inventories $ 181, Capital Assets A summary of the changes in capital assets for the year ended June 30, 2016 is presented as follows. The current year depreciation expense was $2,270,941. Table 5: Capital Assets Nondepreciable capital assets Beginning Balance Additions / Transfers Retirements Ending Balance Land $ 803,201 $ - $ - $ 803,201 Construction in progress 186,796 (120,236) - 66,560 Total nondepreciable capital assets $ 989,997 $ (120,236) $ - $ 869,761 Depreciable capital assets Buildings $ 78,528,003 $ 186,796 $ - $ 78,714,799 Equipment 5,399, ,592 (557,976) 5,337,749 Library resources 848,273 39,662 (13,689) 874,246 Subtotal depreciable capital assets 84,775, ,050 (571,665) 84,926,794 Less accumulated depreciation Buildings 13,261,456 1,592,980-14,854,436 Equipment 3,276, ,789 (321,271) 3,364,515 Library resources 697,329 39,054 (13,689) 722,694 Total accumulated depreciation 17,235,782 2,040,823 (334,960) 18,941,645 Total depreciable capital assets, net $ 67,539,627 $ (1,317,773) $ (236,705) $ 65,985,149 Capital assets, net of accum. depr. $ 68,529,624 $ (1,438,009) $ (236,705) $ 66,854,910 Bellingham Technical College Page 32

34 7. Deferred Outflows and Deferred Inflows of Resources In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of equity that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The category of deferred outflow of resources reported in statement of net position relates to pensions. Deferred outflows on pensions are recorded when projected earnings on pension plan investments exceed actual earnings and are amortized to pension expense using a systematic and rational method over a closed five-year period. Deferred outflows on pensions also include the difference between expected and actual experience with regard to economic or demographic factors; changes of assumptions about future economic, demographic, or other input factors; or changes in the state s proportionate share of net pension liability. These are amortized over the average expected remaining service lives of all employees that are provided with pensions through each pension plan. State contributions to pension plans made subsequent to the measurement date are also deferred and reduce net pension liability in the subsequent year. In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of equity that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Deferred inflows of resources reported by the College relate to pensions. Deferred inflows on pensions are recorded when actual earnings on pension plan investments exceed projected earnings and are amortized to pension expense using a systematic and rational method over a closed five-year period. Deferred inflows on pensions also include the difference between expected and actual experience with regard to economic or demographic factors; changes of assumptions about future economic, demographic, or other input factors; or changes in the state s proportionate share of net pension liability. These are amortized over the average expected remaining service lives of all employees that are provided with pensions through each pension plan. Bellingham Technical College Page 33

35 8. Accounts Payable and Accrued Liabilities At June 30, 2016, accrued liabilities are the following. Table 6: Accounts Payable and Accrued Liabilities Amount Amounts Owed for Employee Payroll $ 1,342,078 Accounts Payable 1,062,325 Total Accounts Payable and Accrued Liabilities $ 2,404, Unearned Revenue Unearned revenue is comprised of receipts which have not yet met revenue recognition criteria, as follows: Table 7: Unearned Revenue Amount Future Quarter Tuition & Fees $ 273, Risk Management The College is exposed to various risk of loss related to tort liability, injuries to employees, errors and omissions, theft of, damage to, and destruction of assets, and natural disasters. The College purchases insurance to mitigate these risks. Management believes such coverage is sufficient to preclude any significant uninsured losses for the covered risks. The College, in accordance with state policy, pays unemployment claims on a pay-as-you-go basis. Payments made for claims from July 1, 2015 through June 30, 2016, were $6,784. The College purchases commercial property insurance through the master property program administered by the Department of Enterprise Services for buildings that were acquired with COP proceeds. The policy has a deductible of $250,000 per occurrence and the policy limit is $100,000,000 per occurrence. The College has had no claims in excess of the coverage amount within the past three years. The College assumes its potential property losses for most other buildings and contents. The College participates in a State of Washington risk management self-insurance program, which covers its exposure to tort, general damage and vehicle claims. Premiums paid to the State are based on actuarially determined projections and include allowances for payments of both outstanding and current liabilities. Coverage is provided up to $10,000,000 for each claim Bellingham Technical College Page 34

36 with no deductible. The College has had no claims in excess of the coverage amount within the past three years. 11. Compensated Absences At termination of employment, employees may receive cash payments for all accumulated vacation and compensatory time. Employees who retire get 25 percent of the value of their accumulated sick leave credited to a Voluntary Employees Beneficiary Association (VEBA) account, which can be used for future medical expenses and insurance purposes. The amounts of unpaid vacation and compensatory time accumulated by College employees are accrued when incurred. The sick leave liability is recorded as an actuarial estimate of one-fourth the total balance on the payroll records. The accrued vacation leave totaled $526,829, and accrued sick leave totaled $643,529 at June 30, Accrued annual and sick leave are categorized as noncurrent liabilities. 12. Notes Payable In June 2010, the College obtained financing in order to build the Campus Center Building and remodel the College Services and Des McArdle Center buildings through certificates of participation (COP), issued by the Washington Office of State Treasurer (OST) in the amount of $27,335,000. The interest rate charged is approximately 3.9 percent. In February 2011, the College obtained financing in order to add space for the Campus Store and Student Activities Center within the Campus Center building through COP, issued by the OST in the amount of $1,410,000. Students assessed themselves, on a quarterly basis, a mandatory fee to service the debt related to the Student Activities space starting in The remaining portion of the debt service is paid from the accumulated retained earnings of the Campus Store. The interest rate charged is approximately 4.7 percent. Student fees and Campus Store earnings related to the COP are accounted for in dedicated funds, which are used to pay principal and interest, rather than coming out of the general operating budget. The College s debt service requirements for these note agreements for the next five years and thereafter are denoted in the following table. Bellingham Technical College Page 35

37 13. Annual Debt Service Requirements Future debt service requirements at June 30, 2016 are as follows. Table 8: Annual Debt Service Requirements Certificates of Participation Fiscal year Principal Interest Total ,230, ,881 $ 2,105, ,270, ,331 2,108, ,310, ,421 2,108, ,350, ,396 2,105, ,400, ,681 2,107, ,845,000 2,694,270 10,539, ,655, ,214 8,538,214 Total $ 22,060,000 $ 7,553,195 $ 29,613, Schedule of Long Term Liabilities Table 9: Long Term Debt Balance outstanding 6/30/15 Additions Reductions Balance outstanding 6/30/16 Current portion Compensated Absenses 1,143,630 26,728 1,170,358 Net Pension Obligation 2,762, ,499 3,600,054 Certificates of Participation 23,255,000 (1,195,000) 22,060,000 1,230,000 Total $ 27,161,185 $ 864,227 $ (1,195,000) $ 26,830,412 $ 1,230,000 Bellingham Technical College Page 36

38 15. Pension Liability Pension liabilities reported as of June 30, 2016 consists of the following: Pension Liability by Plan PERS 1 $ 1,641,309 PERS 2/3 1,448,339 TRS 1 443,223 TRS 2/3 67,184 Total $ 3,600, Pension Plans The College offers three contributory pension plans. The Washington State Public Employees Retirement System (PERS) and Teachers Retirement System (TRS) plans are cost sharing multiple employer defined benefit pension plans administered by the State of Washington Department of Retirement Services. The State Board Retirement Plan (SBRP) is a multiple employer defined contribution plan for the faculty and exempt administrative and professional staff of the state s public community and technical colleges. The plan includes supplemental payment, when required. The plan is administered by the State Board for Community and Technical Colleges (SBCTC). For FY16, the payroll for the College s covered employees was $3,810,497 for PERS, $469,671 for TRS, and $8,026,220 for SBRP. Total covered payroll was $12,306,388. Bellingham Technical College implemented Government Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions for the fiscal year 2016 financial reporting. The College s defined benefit pension plans were created by statutes rather than through trust documents. With the exception of the supplemental defined benefit component of the higher education retirement plan, they are administered in a way equivalent to pension trust arrangements as defined by the GASB. In accordance with Statement No. 68, the College has elected to use the prior fiscal year end as the measurement date for reporting net pension liabilities to align with the State CAFR. Basis of Accounting Pension plans administered by the state are accounted for using the accrual basis of accounting. Under the accrual basis of accounting, employee and employer contributions are recognized in the period in which employee services are performed; investment gains and losses are recognized as incurred; and benefits and refunds are recognized when due and payable in accordance with Bellingham Technical College Page 37

39 the terms of the applicable plan. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of all plans and additions to/deductions from all plan fiduciary net position have been determined in all material respects on the same basis as they are reported by the plans. The following table represents the aggregate pension amounts for all plans subject to the requirements of GASB Statement No. 68 for Bellingham Technical College, for fiscal year 2016: Aggregate Pension Amounts - All Plans Pension liabilities $3,600,054 Deferred outflows of resources related to pensions $ 793,031 Deferred inflows of resources related to pensions $ 535,306 Pension expense/expenditures $ 404,224 PERS and TRS Plan Plan Descriptions PERS Plan 1 provides retirement and disability benefits and minimum benefit increases to eligible nonacademic plan members hired prior to October 1, PERS Plans 2 and 3 provide retirement and disability benefits and a cost-of-living adjustment to eligible nonacademic plan members hired on or after October 1, Retirement benefits are vested after five years of eligible service. PERS Plan 3 has a defined contribution component that members may elect to self-direct as established by the Employee Retirement Benefits Board. PERS 3 defined benefit plan benefits are vested after an employee completes five years of eligible service. TRS Plan 3 provides retirement benefits to certain eligible faculty hired on or after October 1, The plan includes both a defined benefit portion and a defined contribution portion. The defined benefit portion is funded by employer contributions only. Benefits are vested after an employee completes five or ten years of eligible service depending on the employee s age and service credit, and includes an annual cost-of living adjustment. The defined contribution component is fully funded by employee contributions and investment performance. The College also has one faculty member with pre-existing eligibility who continues to participate in TRS 2. The authority to establish and amend benefit provisions resides with the legislature. PERS and TRS issue publicly available financial reports that include financial statements and required supplementary information. The report may be obtained by writing to the Department of Retirement Systems, PO Box 48380, Olympia, Washington or online at Bellingham Technical College Page 38

40 Funding Policy Each biennium, the state Pension Funding Council adopts PERS and TRS Plan 1 employer contribution rates, Plan 2 employer and employee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for PERS and TRS Plans 1 are established by statute. By statute, PERS 3 employees may select among six contribution rate options, ranging from 5 to 15 percent. The required contribution rates expressed as a percentage of current year covered payroll are shown in the table below. The College and the employees made 100 percent of required contributions. Contribution Rates and Required Contributions The College s contribution rates and required contributions for the above retirement plans for the years ending June 30, 2014, 2015, and 2016 are as follows: Table 10: Contribution Rates at June 30 FY 2014 FY 2015 FY 2016 Employee College Employee College Employee College PERS Plan % 9.21% 6.00% 9.21% 6.00% 11.18% Plan % 9.21% 4.92% 9.21% 6.12% 11.18% Plan % 9.21% 5-15% 9.21% 5-15% 11.18% TRS Plan % 10.39% 6.00% 10.39% 6.00% 13.13% Plan % 10.39% 4.96% 10.39% 5.95% 13.13% Plan % 10.39% 5-15% 10.39% 5-15% 13.13% Table 11: Required Contributions Fiscal Year Employee College Employee College Employee College PERS Plan 1 $ - $ 137,015 $ - $ 144,624 $ - $ 181,760 Plan 2 116, , , , , ,079 Plan 3 60,916 50,913 60,026 52,150 60,245 65,314 TRS Plan 1 12,785 29,068 8,506 32,021 1,743 30,760 Plan 2 2,153 2,504 2,219 2,546 2,658 3,006 Plan 3 12,107 9,245 29,619 9,245 38,927 26,445 Bellingham Technical College Page 39

41 Investments The Washington State Investment Board (WSIB) has been authorized by statute as having investment management responsibility for the pension funds. The WSIB manages retirement fund assets to maximize return at a prudent level of risk. Retirement funds are invested in the Commingled Trust Fund (CTF). Established on July 1, 1992, the CTF is a diversified pool of investments that invests in fixed income, public equity, private equity, real estate, and tangible assets. Investment decisions are made within the framework of a Strategic Asset Allocation Policy and a series of written WSIB adopted investment policies for the various asset classes in which the WSIB invests. For the year ended June 30, 2015, the annual money-weighted rate of return on the pension investments, net of pension plan expenses are as follows: Rate of Pension Plan Return PERS Plan % PERS Plan 2/3 4.63% TRS Plan % TRS Plan 2/3 4.65% These money-weighted rates of return express investment performance, net of pension plan investment expense, and reflects both the size and timing of cash flows. The PERS and TRS target asset allocation and long-term expected real rate of return as of June 30, 2015, are summarized in the following table: Asset Class Target Allocation Long-term Expected Real Rate of Return Fixed Income 20% 1.70% Tangible Assets 5% 4.40% Real Estate 15% 5.80% Global Equity 37% 6.60% Private Equity 23% 9.60% Total 100% The inflation component used to create the above table is 2.20 percent and represents WSIB s most recent long-term estimate of broad economic inflation. Bellingham Technical College Page 40

42 Pension Expense Pension expense is included as part of Employee Benefits expense in the statement of revenues, expenses and changes in net position. The table below shows the components of each pension plans expense as it affected employee benefits: PERS 1 PERS 2/3 TRS 1 TRS 2/3 Total FY15 Pension Expense $ 97,819 $ 171,635 $ 22,366 $ 19,087 $ 310,907 FY16 Amortization of change in proportionate liability 49,024 42,299 (4,541) 6,535 93,317 FY15 Amortization of change in proportionate liability Total Pension Expense $ 146,843 $ 213,934 $ 17,825 $ 25,622 $ 404,224 Changes in Proportionate Shares of Pension Liabilities The changes to the College s proportionate share of pension liabilities from 2014 to 2015 for each retirement plan are listed below: PERS % % PER 2/ % % TRS % % TRS 2/ % % The College s proportion of the net pension liability was based on a projection of the College s long-term share of contributions to the pension plan to the projected contributions of all participating state agencies, actuarially determined. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of June 30, 2014, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3.00% Salary Increases 3.75% Investment rate of return 7.50% Mortality rates were based on the RP-2000 Combined Healthy Table and Combined Disabled Table published by the Society of Actuaries. The Office of the State Actuary applied offsets to the base table and recognized future improvements in mortality by projecting the mortality rates using 100 percent Scale BB. Mortality rates are applied on a generational basis, meaning members are assumed to receive additional mortality improvements in each future year, throughout their lifetime. Bellingham Technical College Page 41

43 Discount Rate The discount rate used to measure the total pension liability was 7.5 percent, the same as the prior measurement date. To determine the discount rate, an asset sufficiency test was completed to test whether the pension plan s fiduciary net position was sufficient to make all projected future benefit payments of current plan members. Consistent with current law, the completed asset sufficiency test included an assumed 7.7 percent long-term discount rate to determine funding liabilities for calculating future contribution rate requirements. Consistent with the long-term expected rate of return, a 7.5 percent future investment rate of return on invested assets was assumed for the test. Contributions from plan members and employers are assumed to continue to be made at contractually required rates (including TRS Plan 2/3, whose rates include a component for the TRS Plan 1 liability). Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return of 7.5 percent on pension plan investments was applied to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability of the College calculated using the discount rate of 7.50 percent, as well as what the College s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50 percent) or 1-percentage-point higher (8.50 percent) than the current rate. 1% Current 1% Increase Decrease Discount Rate Pension Plan (6.50%) (7.50%) (8.50%) PERS Plan 1 1,998,298 1,641,309 1,334,331 PERS Plan 2/3 4,235,017 1,448,339 (685,317) TRS Plan 1 557, , ,245 TRS Plan 2/3 284,262 67,184 (94,196) Bellingham Technical College Page 42

44 Pension Expense and Deferred Outflows and Inflows of Resources Related to Pensions The following represent the components of the College s deferred outflows and inflows of resources as reflected on the Statement of Net Position, for the year ended June 30, 2016: PERS 1 PERS 2/3 Deferred Deferred Deferred Deferred Outflows Inflows Outflows Inflows Difference between expected and actual experience 153,959 Difference between expected and actual earnings of pension plan investments 89, ,638 Changes of Assumptions 2,334 Changes in College's proportionate share of pension liabilities 116,401 Contributions to pension plans after measurement date 189, ,996 $ 189,898 $ 89,797 $ 502,690 $ 386,638 Difference between expected and actual experience Difference between expected and actual earnings of pension plan investments TRS 1 TRS 2/3 Deferred Deferred Deferred Deferred Outflows Inflows Outflows Inflows 10,635 32,806 26,065 Changes of Assumptions 58 Changes in College's proportionate share of pension liabilities 29,339 Contributions to pension plans after measurement date 33,426 26,985 $ 33,426 $ 32,806 $ 67,017 $ 26,065 The $793,031 reported as deferred outflows of resources represent contributions the College made subsequent to the measurement date and will be recognized as a reduction of the net pension liability for the year ended June 30, Bellingham Technical College Page 43

45 Other amounts reported as deferred outflows and inflows of resources will be recognized in pension expense as follows: Year ended June 30 PERS 1 PERS 2/3 TRS 1 TRS 2/ $ (34,802) $ (73,123) $ (12,724) $ (1,725) 2018 (34,802) (73,123) (12,724) (1,725) 2019 (34,802) (88,353) (12,724) (1,726) , ,446 5,365 12, ,208-5, Total $ (89,796) $ (113,945) $ (32,807) $ 13,968 State Board Retirement Plan Plan Description Faculty and exempt administrative and professional staff are eligible to participate in SBRP. The Teacher s Insurance and Annuity Association (TIAA) and the College Retirement Equities Fund (CREF) are the companion organizations through which individual retirement annuities are purchased. Employees have at all times a 100 percent vested interest in their accumulations. TIAA-CREF benefits are payable upon termination at the member s option unless the participant is re-employed in another institution which participates in TIAA-CREF. The Plan has a supplemental payment component that guarantees a minimum retirement benefit goal based upon a one-time calculation at each employee s retirement date. The SBCTC makes direct payments on behalf of the College to qualifying retirees when the retirement benefit provided by TIAA-CREF does not meet the benefit goal. Employees are eligible for a nonreduced supplemental payment after the age of 65 with ten years of full-time service. The minimum retirement benefit goal is 2 percent of the average annual salary for each year of full-time service up to a maximum of 25 years. However, if the participant does not elect to make the 10 percent TIAA-CREF contribution after age 49, the benefit goal is 1.5 percent for each year of full-time service for those years the lower contribution rate is selected. The State Board for Community and Technical Colleges is authorized to amend benefit provisions under RCW 28B In 2011, the plan was amended to eliminate the supplemental benefit provisions for all employees hired after June 30, Contributions Contribution rates for the SBRP (TIAA-CREF), which are based upon age, are 5, 7.5 or 10 percent of salary and are matched by the College. Employee and employer contributions for the year ended June 30, 2016 were each $ 698,307. Bellingham Technical College Page 44

46 The SBRP supplemental pension benefits are unfunded. For the year ended June 30, 2016, supplemental benefits were paid by the SBCTC on behalf of the College in the amount of $766,692. In 2012, legislation (RCW 28B ) was passed requiring colleges to pay into a Supplemental Benefit Fund managed by the State Investment Board, for the purpose of funding future benefit obligations. During FY 2016, the College paid into this fund at a rate of 0.5 percent of covered salaries, totaling $40,132. As of June 30, 2016, the Community and Technical College system accounted for $10,439,441 of the fund balance. Washington State Deferred Compensation Program The College, through the state of Washington, offers its employees a deferred compensation plan created under Internal Revenue Code Section 457. The plan, available to all State employees, permits individuals to defer a portion of their salary until future years. The state of Washington administers the plan on behalf of the College s employees. The deferred compensation is not available to employees until termination, retirement or unforeseeable financial emergency. The College does not have access to the funds. Bellingham Technical College Page 45

47 17. Other Post-Employment Benefits Health care and life insurance programs for employees of the state of Washington are administered by the Washington State Health Care Authority (HCA). The HCA calculates the premium amounts each year that are sufficient to fund the statewide health and life insurance programs on a pay-as-you-go basis. These costs are passed through to individual state agencies based upon active employee headcount; the agencies pay the premiums for active employees to the HCA. The agencies may also charge employees for certain higher cost options elected by the employee. State of Washington retirees may elect coverage through state health and life insurance plans, for which they pay less than the full cost of the benefits, based on their age and other demographic factors. The health care premiums for active employees, which are paid by the agency during the employees working careers, subsidize the underpayments of retirees. An additional factor in the Other Post-Employment Benefits (OPEB) obligation is a payment that is required by the State Legislature to reduce the premiums for retirees covered by Medicare (an explicit subsidy). This explicit subsidy is also passed through to state agencies via active employee rates charged to the agency. There is no formal state or College plan that underlies the subsidy of retiree health and life insurance. The actuary allocated the statewide disclosure information to the community and technical college system level. The SBCTC further allocated these amounts among the colleges. The College s share of the GASB 45 actuarially accrued liability (AAL) is $8,538,347 with an annual required contribution (ARC) of $849,669. The ARC represents the amortization of the liability for fiscal year 2016 plus the current expense for active employees, which is reduced by the current contributions of approximately $123,569. The College s net OPEB obligation (NOO) at June 30, 2016 was approximately $1,969,129. This amount is not included in the College s financial statements. The College paid $2,247,084 for healthcare expenses in 2016, which included its pay-as-you-go portion of the OPEB liability. Bellingham Technical College Page 46

48 18. Operating Expenses by Program In the Statement of Revenues, Expenses and Changes in Net Assets, operating expenses are displayed by natural classifications, such as salaries, benefits, and supplies. The table below summarizes operating expenses by program or function such as instruction, research, and academic support. The following table lists operating expenses by program for the year ending June 30, Table 12: Expenses by Functional Classification Amount Instruction $ 11,107,182 Academic Support Services 2,782,394 Student Services 4,167,695 Institutional Support 3,613,140 Operations and Maintenance of Plant 2,550,930 Scholarships and Other Student Financial Aid 5,658,514 Auxiliary enterprises 1,921,976 Depreciation 2,270,941 Total operating expenses $ 34,072, Commitments and Contingencies There is a class action lawsuit, Moore v. HCA, filed against the State of Washington on behalf of former part-time and non-permanent employees alleging improper denial of healthcare benefits. As of the end of fiscal year 2016, the parties had reached a settlement agreement with the plaintiffs to settle all matters relating to this and related lawsuits. On March 29th 2016, the legislature passed the supplemental budget which included an appropriation to fund the settlement for the Moore v. HCA lawsuit. SBCTC s portion of this obligation is $32 million of which $19 million is funded by the legislature and the remaining $13 million allocated among 34 colleges in the system. In July 2016, the College was assessed and accrued a total liability in the amount of $97,168. Additionally, the College is engaged in various legal actions in the ordinary course of business. Management does not believe the ultimate outcome of these actions will have a material adverse effect on the financial statement. Bellingham Technical College Page 47

49 20. Subsequent Events No subsequent events to report. Bellingham Technical College Page 48

50 Required Supplementary Information Pension Plan Information Cost Sharing Employer Plans Schedules of Bellingham Technical College s Proportionate Share of the Net Pension Liability Schedule of Bellingham Technical College's Share of the Net Pension Liability Public Employees Retirement System (PERS) Plan 1 Measurement Date of June College s proportion of the net pension liability % % College proportionate share of the net pension liability $ 1,537,056 $ 1,641,309 Covered payroll $ 3,360,407 $ 3,596,623 College s proportionate share of the net pension liability as a percentage of its covered payroll 45.74% 45.63% Plan s fiduciary net position as a percentage of the total pension liability 61.19% 59.10% *These schedules are to be built prospectively until they contain 10 years of data. Bellingham Technical College Page 49

51 Cost Sharing Employer Plans Schedules of Bellingham Technical College s Proportionate Share of the Net Pension Liability Schedule of Bellingham Technical College's Share of the Net Pension Liability Public Employees Retirement System (PERS) Plan 2/3 Measurement Date of June College s proportion of the net pension liability % % College proportionate share of the net pension liability $ 794,072 $ 1,448,339 Covered payroll $ 3,360,407 $ 3,596,623 College s proportionate share of the net pension liability as a percentage of its covered payroll 23.63% 40.27% Plan s fiduciary net position as a percentage of the total pension liability 93.29% 89.20% *These schedules are to be built prospectively until they contain 10 years of data. Bellingham Technical College Page 50

52 Cost Sharing Employer Plans Schedules of Bellingham Technical College s Proportionate Share of the Net Pension Liability Schedule of Bellingham Technical College's Share of the Net Pension Liability Teachers Retirement System (TRS) Plan 1 Measurement Date of June College s proportion of the net pension liability % % College proportionate share of the net pension liability $ 416,492 $ 443,223 Covered payroll $ 416,514 $ 513,871 College s proportionate share of the net pension liability as a percentage of its covered payroll 99.99% 86.25% Plan s fiduciary net position as a percentage of the total pension liability 68.77% 65.70% *These schedules are to be built prospectively until they contain 10 years of data. Bellingham Technical College Page 51

53 Cost Sharing Employer Plans Schedules of Bellingham Technical College s Proportionate Share of the Net Pension Liability Schedule of Bellingham Technical College's Share of the Net Pension Liability Teachers Retirement System (TRS) Plan 2/3 Measurement Date of June College s proportion of the net pension liability % % College proportionate share of the net pension liability $ 14,935 $ 67,184 Covered payroll $ 204,912 $ 372,106 College s proportionate share of the net pension liability as a percentage of its covered payroll 7.29% 18.06% Plan s fiduciary net position as a percentage of the total pension liability 96.81% 92.48% *These schedules are to be built prospectively until they contain 10 years of data. Bellingham Technical College Page 52

54 Pension Plan Information Cost Sharing Employer Plans Schedules of Contributions Schedule of Contributions Public Employees Retirement System (PERS) Plan 1 Fiscal Year Ended June 30 Fiscal Year Contractually Required Contributions Contributions in relation to the Contractually Required Contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2014 $ 135,056 $ 135,056 $ $ 3,360, % 2015 $ 144,210 $ 144,210 $ $ 3,596, % 2016 $ 180,693 $ 180,693 $ $ 3,813, % Notes: These schedules will be built prospectively until they contain 10 years of data. Bellingham Technical College Page 53

55 Cost Sharing Employer Plans Schedules of Contributions Schedule of Contributions Public Emplyees Retirement System (PERS) Plan 2/3 Fiscal Year Ended June 30 Fiscal Year Contractually Required Contributions Contributions in relation to the Contractually Required Contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2014 $ 165,953 $ 165,953 $ $ 3,360, % 2015 $ 180,566 $ 180,566 $ $ 3,596, % 2016 $ 235,697 $ 235,697 $ $ 3,813, % Notes: These schedules will be built prospectively until they contain 10 years of data. Bellingham Technical College Page 54

56 Cost Sharing Employer Plans Schedules of Contributions Schedule of Contributions Teachers Retirement System (TRS) Plan 1 Fiscal Year Ended June 30 Fiscal Year Contractually Required Contributions Contributions in relation to the Contractually Required Contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2014 $ 27,926 $ 27,926 $ $ 416, % 2015 $ 31,307 $ 31,307 $ $ 513, % 2016 $ 32,155 $ 32,155 $ $ 483, % Notes: These schedules will be built prospectively until they contain 10 years of data. Bellingham Technical College Page 55

57 Cost Sharing Employer Plans Schedules of Contributions Schedule of Contributions Teachers Retirement System (TRS) Plan 2/3 Fiscal Year Ended June 30 Fiscal Year Contractually Required Contributions Contributions in relation to the Contractually Required Contributions Contribution deficiency (excess) Covered payroll Contributions as a percentage of covered payroll 2014 $ 11,345 $ 11,345 $ $ 204, % 2015 $ 21,160 $ 21,160 $ $ 372, % 2016 $ 27,873 $ 27,873 $ $ 422, % Notes: These schedules will be built prospectively until they contain 10 years of data. Bellingham Technical College Page 56

58 We would like to acknowledge the following staff responsible for the content of this report: Sherry Minninger, Controller Brianne Lewis, Principal Accountant Lauren Gaiser, Budget and Financial Analyst Chad Stiteler, Vice President of Administrative Services Bellingham Technical College Page 57

59